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The University of Michigan Health System and Jackson-based Allegiance Health have signed a letter of intent that would make Allegiance Health a part of the university health system, officials said Tuesday.

Under the agreement, UMHS would initially commit $25 million in investments for capital and strategic initiatives to the Allegiance Health Foundation, said Ora Pescovitz, CEO of the UM Health System.

Another "$100 million will be invested (by Allegiance) to satisfy routine maintenance, replace capital equipment … to keep the hospital functioning at the highest level possibly," said Pescovitz.

"We haven't identified the source of the $100 million, but some will come from operational efficiencies" generated by Allegiance, Pescovitz said.

Georgia Fojtasek, CEO of Allegiance, said Allegiance and UMHS mutually decided to negotiate the transaction to help each other navigate health care reform.

Fojtasek said working with the university will enhance local clinical services in Jackson. The arrangement also will expand existing clinical programs that the two hospitals share, including cardiology and radiation oncology, she said.

"Eventually, Allegiance will be integrated into the UM Health System," said Pescovitz, adding that the letter of intent and regulatory approvals could take six to 18 months to complete.

Pescovitz said the university also will benefit from an increase in complex patient care referrals from Allegiance to its hospital in Ann Arbor.

Fojtasek said the letter of intent states that the Allegiance name would continue for at least seven years.

"There has been no decision to change any names," Pescovitz said.

Under the proposal, Allegiance leaders would continue to serve on local governance committees and influence the future of the organization alongside UMHS leaders.

"We have a full fiduciary board, with appointees from UM and from the Jackson community," Fojtasek said. "The board will work to determine the future of Allegiance" with university input.